Masterworks: an alternative investment for art enthusiasts

Investing in multimillion-dollar paintings requires a substantial amount of capital. Masterworks, a privately held startup, wants to change that. Masterworks is making the art world a little less exclusive by allowing everyday investors to own a fraction or a percentage of these high-priced investments for a lot less money. Users can buy (and trade) shares in “blue-chip” art pieces, which include masterpieces by Pablo Picasso, Claude Monet, Andy Warhol, Banksy, Kaws, Jean-Michel Basquiat, and others.

Masterworks examine how specific works of art have been praised over time. Its objective is to buy the art that has the best chance of valuing in the future. The company, therefore, selects a piece, which Masterworks then purchases and registers with the Securities and Exchange Commission (SEC). This secures the artwork. Masterworks.io can list the artwork for sale on its platform once it has been approved by the SEC. Masterworks sells shares to its members for 90 days as a primary offering. You may purchase an unlimited number of shares at the listed price.  Masterworks keep artworks for three to ten years before selling them to collectors in the contemporary art market.

Lynn has a background in technology and finance, having founded and led companies such as At First Sight, an online dating site sold to Match.com in 2014, and Payability, a fintech firm that provides financial solutions for e-commerce and businesses. Lynn became interested in the possibility of fractional ownership of artworks after selling his first company and began investing in the art world.

He founded Masterworks in 2017 and has since been a key player in the art world. ArtNews even wrote an article about this where they remark “In 2021 Masterworks raised $110 million in Series A funding”, and this money was given to them by MoMA (Museum of Modern Art in New York) board member Glenn Fuhrman. By February 2022, the company had spent $450 million on more than 100 paintings (according to internal documents, this had increased to $475 million by May).

Scott remarks that: “I think the art market created this entire infrastructure of not being accessible. If you walk into a gallery in Chelsea, if you walk into a gallery uptown in New York City, most of the time people don’t even come up and talk to you. It’s just a weird industry that caters to the handful of ultra-wealthy people.”

Masterworks charge a 1.5% management fee for each item purchased, which covers professional storage, insurance, administrative costs, regulatory filings, quarterly appraisals, and trading. This simplifies the art-buying process and encourages more people to participate. Since its inception in 2017, over “200,000 people have signed up for the platform, but only about 15,000 have invested”. Diversifying with fine art is particularly potent because it is a statistically independent asset, meaning its value fluctuates independently of the stock market. Blue-chip art has outperformed the S&P 500 by more than 250% since 2000, and it is frequently said to be less volatile than the stock market.

200,000 people have signed up for the platform, and 15,000 have invested

The company is quick to warn investors that they should not expect immediate returns, but rather profit after three to ten years of ownership. Loads of big names have invested in Masterworks already such as entrepreneurs Gary Vaynerchuk, John Henry, and Dick Costello. 

Dick Costello, an American businessman and former CEO of Twitter between 2010 to 2015, is an extensive supporter of Masterworks, and what it will do for the art world. In a Series A press release by Masterworks, he remarked that: “Masterworks is democratizing access to one of the oldest and most storied asset classes in the world. They’re opening up fine art investment to a broader group of investors, and I’m excited to be a part of it.” 

John Henry, owner of the Boston Red Sox and a startup investor, has also advocated for investing in art through Masterworks. In a 2020 interview with CNBC, Henry stated that he perceives the art market to be “incredibly exciting,” and that he believes Masterworks is supplying a valuable service by facilitating the ability for investors to access this asset class. Art has historically been a complicated asset class for individual investors to access, but Masterworks is changing that by allowing investors to purchase fractional shares in works of art.